Meet the Australian Companies Behind the Grassy Mountain Project
November 30, 2020
Who are Benga Mining, Riversdale Resources, and Hancock Prospecting Pty Ltd? These are the three Australian companies aspiring to exploit the coal of Grassy Mountain. Hancock Prospecting is the world-renowned mothership of this network. Under the leadership of Gina Rinehart, the richest person in Australia, Hancock has made money hand over fist. In early November, Hancock reported profits of US $3 billion on revenue of US $7.8 billion. Its Roy Hill iron ore operation in Western Australia (Hancock is the majority shareholder in the project with a 70% equity position) is the Crown jewel of Rinehart’s empire. Rinehart’s personal fortune and Hancock’s profitability are why a senior Benga Mining official agreed during the Joint Review Panel hearing that, from the financial resources standpoint, Hancock has “deep pockets.”
Hancock is using Benga Mining and Riversdale Resources as its tools to pursue this coal project. Riversdale Resources is a wholly-owned subsidiary of Hancock: Benga Mining is a wholly-owned subsidiary of Riversdale. These small companies don’t have the pedigree of Hancock but their brief histories have some of the colour and controversy that has swirled around Rinehart and her family. The founders of Riversdale Resources were key players in an African coal mining project sale that The Australian said “will be remembered as one of the worst deals in corporate history.”
Benga – A Mozambique Debacle
In 2011, Riversdale Resources rose like a phoenix out of Riversdale Mining Ltd. The business press used terms like explorer and promoter, not producer, to describe Riversdale Mining during the company’s heyday in 2010/2011. Then Riversdale was promoting two coal ventures in Mozambique, the Zambeze and Benga projects. Benga was the company’s flagship. The hopes the Mozambique government pinned on the Benga project was underlined when the country’s president’s attended the ground breaking ceremony for the construction of this mine in April 2010.
Riversdale Mining claimed the project would exploit 502 million tonnes of proven and probable coal reserves. The company’s statements and promises about the project were commensurate with the gigantic size of the resource. Riversdale’s Executive Chairman described this venture, first expected to start production by the end of 2010, as “one of the most significant foreign direct investment projects in Mozambique.” Riversdale estimated it would produce 6 million tonnes of metallurgical coal per year by 2013; it said around 15 percent of the project’s capital expenditures would be in the local market; it said the mine would create up to 4,500 direct and indirect jobs by 2015.
Riversdale was at a crossroads. Did the company take the expensive, risky path of becoming a serious coal producer in one of the globe’s poorest, least-developed countries? Or, did it stay true to its roots as a promoter and try to sell its assets to a more experienced, well-capitalized miner? Riversdale stayed true to its roots. In December 2010, Rio Tinto offered a staggering $3.9 billion for Riversdale. Rio Tinto gained effective control of Riversdale four months later after a nail-biting takeover journey.
Less than two years later, the bloom was fast fading on the Benga project. Rio Tinto’s hopes to ship Benga coal down the Zambezi came to nothing; its coal transportation challenges weren’t eased when two coking coal trains derailed in 2012. Consequently, coal shipments in 2012 were far below the volumes needed to reach the 1.7 million tonnes per year target Riversdale thought the first stage of the mine could produce. In January 2013 the company wrote down its Mozambique coal assets by $3 billion. Senior Rio officials who championed the takeover were shown the door.
In addition to what was unfolding as an insurmountable transportation problem, Rio Tinto also had to revise downward the estimates of how much coking coal it could recover from the Benga property. The Financial Times suggested this miscalculation raised questions of “due diligence.” Called “the jewel in the crown” by one Rio Tinto mine manager, the Benga mine was looking more and more like a cheap piece of costume jewelry.
Just over one year later, in July 2014, a chastened Rio Tinto bailed out of Mozambique. Fifty million dollars…that’s the paltry sum Rio received when it sold the properties it had paid $3.9 BILLION for just three years earlier. “Rio yesterday confirmed it was sold down the Zambezi River when it bought Riversdale,” reported The Australian on July 31st, “having misread the coking coal market, the quality of the resource and the African government’s willingness to let it barge its product down the famous waterway.”
Riversdale “Mark II” Comes to North America
Four months after Rio Tinto gobbled up Riversdale Mining, Michael O’Keeffe and Steve Mallyon, two key Riversdale figures in the takeover, hatched Riversdale Resources Ltd. “We have always thought we can do better than Riversdale Mark I,” Mallyon said. “Mark II will hopefully be bigger and better.” O’Keeffe, Riversdale Mining’s Chief Executive Chairman, reportedly profited very handsomely when the book closed on Riversdale Mark I – he should have received approximately $100 million from the sale to Rio Tinto.
High costs and skilled labour shortages discouraged them from pursuing opportunities in Australia; so too did high rail and port charges and the “very high royalties” levied in Queensland. Consequently, O’Keeffe and Mallyon turned their promoter skills to North America. Mallyon told The Wall Street Journal that the new incarnation of Riversdale was targeting U.S. coal assets. In January 2012 they purchased coal tenures in Alaska. These exploration rights to more than 10,000 acres near Chickaloon looked like they could become the new crown jewels of Riversdale’s holdings. Chickaloon tribal council, unlike the Indian Act band councils in southern Alberta, opposed corporate intentions to mine coal. “We’ve been fighting coal mining for a long time,” said Lisa Wade, a Chickaloon tribal council member. “What it comes down to is values – we want the long-term protection of place.”
It’s unclear how important that indigenous opposition was to the apparent demise of the Chickaloon project. The Chickaloon project is not listed on the Riversdale website nor has it been mentioned in the business press for years. By early 2014 the Australians shifted the focus of their exploitation intentions to Canada, to Grassy Mountain. Here they spent nearly $50 million to buy Crowsnest coal properties that Devon and Consol Energy wanted to dispose of. Exploratory drilling proceeded in 2014 and 2015. Benga Mining, Riversdale Resources’ wholly owned subsidiary, submitted its application to go ahead with the Grassy Mountain Coal Project in August 2016.
Given the controversy and question marks around the Benga project I still find it curious that Riversdale would name its subsidiary after that discredited project. In May 2019 Gina Rinehart and Hancock Prospecting’s Board made Riversdale Resources part of the Hancock empire for approximately $700 million. If we measure the success of Riversdale Mark II by the takeover price it fetched, it wasn’t nearly as successful as its first iteration.
Deep Pockets and Limited Liability Corporations
At the outset of this post I referred to the fact that Hancock has “deep pockets.” What does this mean for the Grassy Mountain Coal Project? If Gina Rinehart and her board choose, those deep pockets can be relied on to finance or guarantee the financing of the mine’s construction and operations. Those deep pockets, however, will mean much less if Benga Mining’s performance is so bad that Hancock decides to shut the mine down. They will mean very little too with respect to the reclamation phase of the project.
Hancock will be able to protect its deep pockets because both Riversdale Resource and Benga Mining are limited liability corporations. In such corporations, according to the law firm Bennett Jones, “shareholders are not, in general, liable for the liabilities, acts or omissions of the corporation in which they hold shares.” If Benga went bankrupt, its limited liability status protects Hancock. If Benga still exists when the mine ceases production, Albertans have to hope it will have posted adequate money, or equivalent security, to fund reclamation and long-term monitoring activities under the Mine Financial Security Program. So far the secrecy around companies’ detailed reclamation assumptions, and the lack of mandatory deadlines for reclamation do not bode well. Since the deep-pocketed Hancock can easily turn its back on Grassy Mountain, Alberta taxpayers may well be forced to pay.
– Ian Urquhart, Conservation Director